Lining up the Bills: Preparing for a Double Dissolution

Reflections on the Recommendations of the Cole Royal Commission

Wilhelm Harnisch

Introduction

A central tenet of the Cole Royal Commission is restoring the rule of law. The rule of law is a concept that has an immediate attraction for lawyers as it sounds high brow and places law at the centre of the definition of civilization. But for an economist, it is the practicality of the notion that is so important. It is an idea that has practical currency, one that goes far beyond a rhetorical prop. As Singleton from the Cato Institute has observed:

(L)aw in our society serves an essential practical function---that is, to supply the ground rules so that businesses, investors, and individuals can plan their actions to avoid disputes with one another. Disputes and the risk of disputes vastly raise the risk and cost of new ventures. That is, the most important function of the law is to lower the risks of uncertainty in making long term plans.[1]

In this paper, I want to emphasise the importance of that economic concept. I want to emphasise that the findings of the Cole Royal Commission are such that a picture is painted of a landscape where the risks of uncertainty are high, uncertainty generated by illicit behaviour. Whilst the CFMEU has made much play that a number of major projects, such as the Sydney Olympics, were built on time and on budget, they miss the point. That claim is not a defence to unlawful behaviour. The reality is that the normative values that apply in this industry don't include respect for the law.

And I don't mean the sort of respect for the law demonstrated by one lawyer who died prematurely. Finding himself at heaven's gates confronting St. Peter, he protested that it was all a mistake---he was only 49 and far too young to be dead. "that's odd," said St. Peter, "according to the hours you've billed you're 119 years old."

There are two main arguments that I will make in this paper in support of the Cole recommendations concerning workplace reform. First, all citizens condemn unlawfulness as morally repugnant, especially where that illegality wrongfully diverts resources from the public good. Second, there are sound economic arguments for restoring the rule of law in the building and construction industry especially in order to lower the risks of investing in the nation's infrastructure development and for increasing the efficiency of the industry. That is why the idea of the practical rule of law is very important.

Following the making of those arguments, I want to analyse some of the practical and political risks associated with the reforms and set out why the government and the parliament should set aside the objections of vested interests and act swiftly to implement the scheme Cole has outlined. For today, I will confine my remarks to workplace reform. However, it needs to be said that the Cole recommendations cover a much broader spectrum, affecting occupational health and safety, tax, Workers' compensation and training, something that shows to be false the accusation of unions that the Cole inquiry does not deal adequately with all of the matters covered by the royal commission's terms of reference. There was no bias in the conduct of the royal commission and that should be accepted by those who don't like Cole's message.

Unlawfulness is not acceptable---the moral argument

Criminality and general lawlessness are morally objectionable. They have no place in any sector of the economy. Citizens need to know that their taxes are being properly spent on the construction of basic infrastructure, such as schools and hospitals, rather than on increasing the economic rent of those who hold projects to hostage and who flout the rule of law.

The recent communiqué issued by the Workplace Relations Ministerial Council made it plain that there was unanimous agreement amongst state and commonwealth workplace relations ministers that unlawful behaviour in the building and construction industry is not acceptable.[2] The ACTU in the lead up to the release of the Cole Royal Commission report said that it condemned criminality.[3] Unlawful behaviour as common practice in an industry cannot be countenanced---that view is unassailable. Greg Combet recently said that the Cole Royal Commission's recommendations were "overwhelmingly directed against unions instead of real problems in the industry."[4] That assertion is disappointing, to say the least. Surely, the source of the industry's real problem is criminal and unlawful behaviour that undermines the moral fibre of the industry, is un-Australian and, at a practical level, affects investment and productivity? Playing the man and not the ball is a sure sign that the union movement is uncomfortable with the truth that has been exposed.

Commissioner Cole has found that 23 union officials and eight employer or employer organisation officers might have breached the criminal law. He also identified 66 incidents of unlawful (non-criminal) conduct requiring action. We place a high priority on the punishment of this sort of behaviour in order to send a message that thuggery and criminality are not going to be permitted. The worst is yet to be revealed---volume 23 has not yet been made public and the "gory" items will be made public over time, material that will show further that the royal commission is far from discredited and that the new approach to the way the industry operates is aimed at restoring the rule of law in the industry.

The need for a new approach was starkly demonstrated just less than a week after the Cole report was handed down. The media reported that, on 31 March, Perth magistrate Paul Heaney criticised police for wrongly arresting three militant union officials involved in violence at a building site two years ago.[5] The magistrate's reported criticism of police was that they had not been trained in industrial relations law and did not understand the notion of the right of entry. This statement was made in the face of a conviction and fine of a mere $500 for one of the officials for assaulting a policeman. The case is remarkable, and an example of what's wrong with the system, for a number of reasons: the delay in it coming to the courts, the small fine, the unduly harsh criticism of the police and the absolute disincentive for the police to bother in future with criminal matters on building sites as well as the greyness, at least in the mind of the police, if not the magistrate, of rights of entry laws. The case makes Tony Abbott's remark that the construction industry is a classic case not of market failure but of regulatory failure ring even truer and louder.[6] Current institutions have failed the building and construction industry, particularly at the level of enforcement. I will return to that point later, in order to demonstrate why a new order for the building and construction industry is needed.

Reforms will increase efficiency

The moral argument merges with the economic argument.

As I said earlier, there are sound practical and economic reasons for applying the rule of law. The implementation of the recommendations of the Cole Royal Commission will assist in increasing the certainty of investment decisions in building and construction and to increasing the industry's efficiency. Lack of certainty drives up costs in every part of the system, making time lines and expenditure harder to predict. As a result, risk factors attached to cash flows will be higher and expected net present values of projects are lower. When that uncertainty is deliberately and unlawfully generated by a stakeholder in the system, a stakeholder that has an economic interest in raising its share of the economic rent, then governments need to act.

It was a credit to the Howard Government that it acted to establish a royal commission that exposed an unacceptable level of unlawful behaviour and it is to the government's credit that it has already endorsed Cole's central recommendations on workplace reform. MBA views the findings as realistic and the recommendations as practical.

Cole was realistic in his assessment of the commercial vulnerability of the industry. He was right in his isolation of the source of union coercive power. He found that head contractors and subcontractors are subject to severe cost penalties for delayed completion. Industrial action causes immediate loss from standing charges and overheads, and prospective loss from liquidated damages. These losses place intense pressure upon head contractors and subcontractors to give in to industrial demands. If the short term cost of the demands is less than the actual and prospective loss on the specific project, the usual result is that the demand is met. That is because of the short term project profitability focus in the industry which is highly competitive. Those not in the building industry need to understand that committing commercial suicide for the sake of winning an industrial battle may reverberate with expediency but when you consider death of any kind, the alternative is always better.

The main deliverable from the Cole recommendations will be an increase in labour productivity. Labour typically makes up around 50% of the construction costs. It is a labour intensive industry. Therefore, any improvement in productivity will have a significant impact. For instance, the current 36 hour week campaign has been estimated to increase labour costs by around 20%. This means that the cost of a building would increase by at least 10%. The new order envisaged by Cole will better enable employers to resist illegitimate tactics used to force issues such as the implementation of the 36 hour week. The Cole recommendations have the ability to deliver a system where commercial death does not result from industrial resistance.

Cole found that to re-establish the rule of law, a comprehensive industry specific series of reforms is necessary. He found that four principles were needed to drive cultural change:

(a) the boundary between lawful and unlawful industrial activity must be clearly delineated;

(b unlawful conduct must attract serious consequences so that the rule of law may be re-established;

(c) those who, by unlawful conduct or practices cause other participants in the industry loss should bear the cost of the losses they cause; and

(d) there should be an independent monitoring and prosecuting authority in the industry to monitor conduct, and uphold the rule of law.

Two major elements to realising these principles are a separate statute for the industry containing provisions designed to enforce the rule of law and the establishment of a statutory watchdog. The statutory authority, provisionally called the Australian Building and Construction Commission (ABCC), will have wide powers to help thwart those who want to break the law.

This is exactly the outcome that the MBA argued for in its submissions to the Cole inquiry.

The rules will also be much plainer than is currently the case, especially in the light of confusion about rights under different state and commonwealth regulation. Take rights of entry for example---Cole comprehensively covers this subject in recommendations 59-77. The new rules will place administration of complaints about and enforcement of new or enhanced remedies for abuse of the building industry right of entry permits in the hands of the ABCC. Rights of entry laws are not as straightforward as the Perth magistrate's comments to the police that I referred to earlier seem to imply.

The lack of uniformity of entry and inspection provisions in commonwealth and state law makes it difficult for all participants in the system to know their rights and obligations. It leads to the law being disregarded or flouted. It is too easy for permit holders to exploit jurisdictional differences to their own advantage and avoid being held accountable for poor or unlawful conduct which is plainly inconsistent with the rights and privileges attaching to permits. The different state and commonwealth laws and how they interact cause difficulties---Cole's solution of having one new set of clearer rules underpinned by the full extent of commonwealth constitutional power (per recommendation 64) will work. In fact Cole's recommendations will work partly because of this type of consolidation of often disparate rules that currently let actors who want to "play" the system to walk a thin line between the supposedly lawful and the morally reprehensible.

The Government has already accepted a large part of the Cole recommendations. Cabinet has also indicated that the concept of establishing a new industry watchdog is supported. The government will introduce a statute dealing with workplace relations in the industry providing for secret ballots before strikes, compulsory cooling off periods, and damages awards in the event of unprotected industrial action.[7] These reforms are fully supported. They place appropriate boundaries around the notion of protected industrial action. And the industry watchdog will actively help to enforce the law. It will be tough on unions and tough on employers but that is one of the very reasons that should lead to the acceptance of the agency's establishment and role.

Make no mistake; the issue that has the capacity to lift the Cole recommendations above other attempts at reform in this industry is the establishment of a dedicated, powerful agency that will be able to take quick action. It will be the operation of this new agency that has the capacity to transform workplace relations in the industry. Already, the building industry interim taskforce is having a beneficial effect but, in many instances, just doesn't have the clout to do what the ABCC can deliver. To be effective the new body must be a one-stop-shop for all government agencies, avoiding overlaying bureaucracies, an agency that can stand in the shoes of employers and employees who are unable to fund litigation. It will need to be pro-active and speedy and it will need to be staffed by people who have courage.

The need for such an agency is one of the principal reasons that the MBA so enthusiastically embraces separate workplace relations arrangements for the building and construction industry.

Institutions and practical and political risk

Along with other responsible employer groups, MBA has sought wider workplace reform. Some of the Cole recommendations contain broad measures that have already been presented to the parliament, but have been rejected, or measures that are currently in the parliament but that will face opposition. This is of course a political concern. It is probably one of the reasons that those opting for bills to be "stacked up" for a double dissolution trigger have already marked the separate bill that will be the vehicle for the Cole recommendations as one for the stack.

This is an issue of real concern for the MBA. We don't want this bill to die in the parliament. We don't want the reforms proposed by Cole to suffer fatal wounding in party political cross fire or for the bill to be surgically altered in a compromise that will deliver less than the optimum. There is very little than can be "cherry picked" from the Cole recommendations---very little stands alone. They are a cogent whole and congratulations should go to the intelligent way in which the new order has been conceived with its inter-locking functions and dependencies. But there is in that very cohesiveness the danger and the risk that the relevant bill will end up in the stack.

What is the MBA response to this potential political danger? The lobbying of those with the balance of power in the senate is essential. That lobbying must include why the industry needs to have industry specific arrangements, along the lines I have outlined today. Here, the arguments about the failure of the current institutions must be articulated. My prior discussion of the WA magistrate's court case effectively shows why the police may well be discouraged. The predominant culture of conciliation and the outright defiance by many of Australian industrial relation commission procedures and orders means that it is difficult to obtain finality in the AIRC. Remember that delay has been identified as a source of coercive power over employers. In that context, the AIRC's processes just don't render it as the appropriate venue for proper resolution of the industry's disputes for example enforcement of section 127 orders will often involve an expensive and less-than-timely application to the Federal Court.

The findings of the Cole Royal Commission also show that the ACCC does not effectively deal with secondary boycotts in the industrial relations area---and that powers similar to those held by the ACCC should be vested in the proposed ABCC.

The Cole Royal Commission has recommended (recommendation 16) that building industry specific legislation should proscribe secondary boycotts in support of enterprise bargaining. This is a practical recommendation. It does not remove or alter the essential provision of the Trade Practices Act. But it does clarify the reach of unacceptable conduct in building industry workplace relations and does close down an avenue where current institutions have failed the industry.

Suffice to say, it is not enough to try and bolster existing institutions. It is far better to create a new and powerful body that can effect "big bang" change, not incremental change that can be subverted or slowed by those who want to resist change

The ACTU argument that this is the thin edge of the wedge, that this is only a ruse to get a greater part of the coalition workplace relations agenda legislated, must be opposed. The measures proposed by Cole are a world away from the general deregulatory approach of the coalition's wider reforms. However it is clear that the building and construction industry is in a different position to other sectors in seeking to embrace external regulation and, in justification of that position. The highest inquiry process in the land has shown this to be desirable and achievable. A new institutional framework is needed for the building and construction industry. That framework has been well articulated by Cole.

The fear that a new watchdog or commission will become an industry "captive" and that this is all an excuse for cosy intra-industry deals also misses the point. In fact, it completely misses the point and is hardly worthy of rebuttal. The ABCC is not a deliberative forum: It will be an actor in the scheme of things, prodding and poking, achieving enforcement of new, clearer laws. It is this role that will define its difference.

It is a task force designed to pounce on recalcitrant employers as well as others acting outside the law. No featherbedding here.

Conclusion

The implementation of the Cole workplace relations reforms will benefit Australia. A new moral and legal standard will be established. That standard will apply equally to employers and employees within a system that will be more disciplined and that will require respect for, and compliance with, the rule of law. Elimination of conflict in this way will increase the efficiency of the industry---for the betterment of its participants, and also the wider economy. The opportunity to embrace this reform cannot be lost.

Endnotes

[1] S Singleton Capital Markets: The Rule of Law and Regulatory Reform
http://www.cato.org/pubs/wtpapers/990913catorule.html

[2] Joint Communiqué from Commonwealth, State and Territory Workplace Relations Ministers, 28 March 2003. http://www.workplace.gov.au/WP/Content/Files/WP/WR/Policy/WRMC69Communique.pdf

[3] Mark Skulley, "Cole Inquiry 'deeply flawed'", Australian Financial Review, 18 February 2003, p4

[4] "Abbott's Watchdog Targets Workers", 27 March 2003.
http://www.ACTU.asn.au/public/news/1048738816_25334.html

[5] Vanda Carson, "Militant Union Wins Right-of Entry Case", The Australian, 1 April 2003, p8

[6] The Hon Tony Abbott, Minister for Employment and Workplace Relations, "Restoring the Rule of Law in the Construction Industry", 2 April 2003.
http://www.dewrsb.gov.au/ministersAndMediaCentre/mediacentre/
detail.asp?show=2589&creator=Abbott

[7] Ibid.